| Course | MAT 201 Principles of Accounting II |
|---|---|
| Module | Module 7 |
| Paper type | Budgeting paper |
| Length | About 1,012 words, 6 pages |
| Format | APA 7 student paper |
| School | Aspen University |
| Program | Business Administration |
| Updated | October 2026 |
Free sample paper for MAT 201 Module 7
360,000 Cases or 330,000? Budgeting a Yogurt Line and Keeping the Slack Out
Student Name
Business Administration Program, Aspen University
MAT 201: Principles of Accounting II
Instructor Name
Month Day, Year
360,000 Cases or 330,000? Budgeting a Yogurt Line and Keeping the Slack Out
Each fall, Cedar Valley Creamery prepares a master budget for the coming year, which the board approves in December. The yogurt line's part begins with a sales estimate, from which the production, materials, labor and overhead budgets follow, and those feed the budgeted income statement and cash budget. This year, the process stalled at the first step. The sales director proposed 330,000 cases, below last year's 342,000. The controller, using grocery scan data and the new grocery chain contract from Module 6, estimated 360,000. This paper prepares the budgets and explains how the creamery resolved the dispute.
The Master Budget
A master budget is a coordinated set of plans for the coming period. Operating budgets cover sales, production, materials, labor, overhead and selling and administrative expenses; financial budgets cover cash, capital spending and the budgeted balance sheet. The sales budget comes first because nearly everything else depends on how much the company expects to sell.
Sales Budget
| Q1 | Q2 | Q3 | Q4 | Year | |
|---|---|---|---|---|---|
| Cases | 80,000 | 95,000 | 100,000 | 85,000 | 360,000 |
| Price per case | $18 | $18 | $18 | $18 | |
| Sales revenue | 1,440,000 | 1,710,000 | 1,800,000 | 1,530,000 | 6,480,000 |
Production Budget
The creamery wants to end each quarter with yogurt equal to 10% of the next quarter's sales, enough to cover delivery swings without risking spoilage. Next year's first quarter is estimated at 80,000 cases, so the target for the end of Q4 is 8,000. Beginning inventory for Q1 is 7,000 cases.
| Q1 | Q2 | Q3 | Q4 | Year | |
|---|---|---|---|---|---|
| Budgeted sales | 80,000 | 95,000 | 100,000 | 85,000 | 360,000 |
| Add desired ending inventory | 9,500 | 10,000 | 8,500 | 8,000 | 8,000 |
| Total needed | 89,500 | 105,000 | 108,500 | 93,000 | 368,000 |
| Less beginning inventory | 7,000 | 9,500 | 10,000 | 8,500 | 7,000 |
| Cases to produce | 82,500 | 95,500 | 98,500 | 84,500 | 361,000 |
Milk Purchases Budget
Each case requires milk costing $8.40 at the expected price. Because milk is delivered daily and used within two days, the creamery holds no milk inventory to speak of, so purchases equal production needs: 82,500 cases in Q1 require $693,000 of milk; Q2, $802,200; Q3, $827,400; Q4, $709,800; the year, $3,032,400.
From Production to Profit and Cash
The production budget also drives labor and overhead budgets, which the controller prepares the same way, and together they give the yogurt line's budgeted contribution: 360,000 cases at $5.40, or $1,944,000, less fixed costs of $1,620,000, for an operating profit of $324,000. The cash budget then turns these figures into timing. Grocery customers pay in about thirty days and the milk cooperative is paid every two weeks, so the third quarter, with the highest production, will need the most cash. The controller's cash budget shows the line borrowing up to $150,000 on the bank line in August and repaying it by November.
Building in Uncertainty
A single number hides risk, and a budget built on one number invites arguments about that number. The controller prepares two alternative versions of the sales budget, one at 330,000 cases and one at 380,000, and shows how profit and cash change in each. At 330,000 cases, the line earns only $162,000; at 380,000, $432,000. Showing the range helps the board see why the warehouse project should not depend on the optimistic case, and it gives the sales director's caution a proper place as a downside scenario rather than as the target.
Criticisms of Budgeting
Hansen et al. (2003) reviewed developments in budgeting practice and research. Practitioners criticized traditional budgets as time-consuming, quickly outdated, rigid in the face of change and an encouragement to gaming, because managers negotiate easy targets to earn bonuses. Responses ranged from improving budgets, as in activity-based budgeting, to abandoning fixed annual budgets altogether, as the beyond budgeting movement proposed, relying instead on rolling forecasts and relative performance targets.
Why the Sales Director Proposed 330,000
The sales director's bonus depends on beating the sales budget. A low budget makes the bonus easier to earn. Merchant (1985) surveyed managers and examined their propensity to create budgetary slack. He found that slack was related to how managers participated in budgeting and how budgets were used: participation was associated with less propensity to build slack, while emphasis on meeting the budget and predictable production processes were associated with more. Slack is not simply dishonesty; it is a predictable response to how the budget is used.
Do Firms Still Budget?
Libby and Lindsay (2010) asked hundreds of North American companies how they actually budget. Despite the criticisms, most firms continued to use budgets and believed they added value, especially for control. Many, however, were changing their practices, for example by adjusting targets during the year or using budgets less rigidly in evaluating managers, rather than abandoning budgets. That middle path suits Cedar Valley. A creamery with volatile milk prices, a bank covenant and outside stockholders needs a plan it can show to lenders and a board, but it also needs to revise its expectations when milk prices move. The controller will therefore update the forecast each quarter while keeping the original budget for comparison, so managers are judged on how they respond to change, not on a number set a year earlier.
A Better Process
Following that evidence, Cedar Valley will keep its budget but separate two jobs. The controller prepares the forecast of 360,000 cases from market data, with the sales director's input on customers. The board sets the sales director's bonus on growth over last year's actual sales and on margin, not on beating the budget, which removes the reason to understate it. The sales director still contributes to the forecast, since no one knows the customers better, but now has no personal stake in making it low. Each quarter, the controller compares actual sales with the forecast and explains the difference, so the forecast improves from year to year and the board can see whether errors lean consistently in one direction.
Conclusion
The three budgets show the yogurt line producing 361,000 cases and buying $3.03 million of milk. Hansen, Otley and Van der Stede, Merchant and Libby and Lindsay show why budgets draw criticism, why slack appears and why firms keep budgeting.
References
Hansen, S. C., Otley, D. T., & Van der Stede, W. A. (2003). Practice developments in budgeting: An overview and research perspective. Journal of Management Accounting Research, 15(1), 95-116. https://doi.org/10.2308/jmar.2003.15.1.95
Libby, T., & Lindsay, R. M. (2010). Beyond budgeting or budgeting reconsidered? A survey of North-American budgeting practice. Management Accounting Research, 21(1), 56-75. https://doi.org/10.1016/j.mar.2009.10.003
Merchant, K. A. (1985). Budgeting and the propensity to create budgetary slack. Accounting, Organizations and Society, 10(2), 201-210. https://doi.org/10.1016/0361-3682(85)90016-9
MAT 201 Module 7 instructions, in plain terms
Budgeting is the Module 7 topic in MAT 201, and the usual task is to build the opening pieces of a master budget and explain how the process works in practice. Your classroom's Module 7 instructions govern; the creamery's figures are invented. Explain the master budget and how its parts connect. Build quarterly budgets for sales, for production and for the main material you buy. Explain how inventory targets affect production. Address the behavioral side of budgeting, such as slack and the incentives behind it. Recommend a budgeting process, and show how the budget connects to profit and cash. Cite research in APA 7 form.
How the MAT 201 Module 7 example is put together
The sales budget projects 360,000 cases at $18, or $6,480,000, by quarter. The production budget adds a target ending inventory of 10% of next quarter's sales and subtracts beginning inventory, giving 361,000 cases. The milk purchases budget converts production into $3,032,400 of milk. Hansen, Otley and Van der Stede gathered the complaints practitioners and researchers make about budgets, along with remedies like beyond budgeting and activity-based budgeting. Merchant's Accounting, Organizations and Society article examined the propensity of managers to create budgetary slack. Libby and Lindsay polled finance managers across North America about how they budget today. The sales director's 330,000-case proposal came from a bonus tied to beating the budget. The revised process uses a forecast prepared by the controller from market data and sets bonus targets separately.
Reading the MAT 201 Module 7 grading rubric
Budgeting papers score well when the budget tables are correct and connected, and when the writer addresses how people behave around budgets. This example prepares three linked budgets, shows how inventory targets drive production and resolves a slack problem using Merchant's findings. Hansen, Otley and Van der Stede and Libby and Lindsay show both the criticisms of budgeting and why firms keep using budgets. Separating forecasts from performance targets is a practical response grounded in research. Showing a downside and an upside version of the budget treats uncertainty openly instead of hiding it in slack, and linking production to the cash budget shows how the plan reaches the bank account.
Common MAT 201 Module 7 mistakes, and how to avoid them
Budget papers often prepare a production budget equal to sales, ignoring inventory. To get production, take expected sales, add the stock you want left at the end and subtract the stock you start with. Another weakness is treating the budget as a purely technical exercise; address slack and gaming. Show how each budget feeds the next. Check that totals for the year equal the sum of the quarters, except for inventory, where the year's beginning and ending balances apply. Explain who prepares the budget and how it will be used. Finally, recommend a process that limits slack without discouraging honest forecasts. Prepare alternative scenarios so cautious views are heard without becoming the target.
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MAT 201 Module 7 questions, answered
What does MAT 201 Module 7 usually ask for?
Aspen's MAT 201 makes budgeting the Module 7 topic, so preparing parts of a master budget and explaining the budgeting process is typical. Look over your classroom prompt.
How is a production budget calculated?
Start with expected unit sales, add the closing stock you want on hand and take away the opening stock; the result is what must be made.
What is budgetary slack?
Deliberately understating revenue or overstating costs in a budget so that targets are easier to meet; Merchant studied when managers create it.
Where can I find a free MAT 201 Module 7 sample paper?
The example above prepares sales, production and milk purchases budgets for a creamery's yogurt line and addresses budgetary slack.
Do companies still use budgets?
Libby and Lindsay found that most North American firms still use budgets and value them for control, though many are changing how they use them.